Hotels, Clubs, Restaurants & Tavern Employees' Union, Local 261 v. Calmil Enterprises, 1980 CanLII 772

Ontario Labour Relations Board

[1980] OLRB Rep. April 401

1153-79-R Hotels, Clubs, Restaurants & Tavern Employees' Union, Local 261, Applicant, v. 423131 Ontario Inc and 423132 Ontario Inc. carrying on business under the Registered Firm Name and Style of Calmil Enterprises, Respondent.

BEFORE: R.O. MacDowell, Vice-Chairman and Board Members C.G. Bourne and W.F. Rutherford.

APPEARANCES: Eleanor S. Dunn and Frank Grella for the applicant; John G. Dunlap, Q. C. and Michael Dunlap for the respondent.

DECISION OF R. O. MACDOWELL, VICE-CHAIRMAN AND BOARD MEMBER C.G. BOURNE; April 16, 1980

PART I

1. The name "CALMIL ENTERPRISES carrying on business as the Cafe de la Place" appearing in the style of cause of this application as the name of the respondent is amended to read: “423131 ONTARIO INC. and 423132 ONTARIO INC. carrying on business under the Registered Firm Name and Style of CALMIL ENTERPRISES.”

2. This is an application under section 55 of The Labour Relations Act involving a restaurant business, formerly conducted by Skyline Hotels Ltd., in a commercial complex in the City of Ottawa, known as the Place de Ville. The applicant union contends that there has been a “transfer of a business”, within the meaning of section 55, from Skyline Hotels Ltd. ("Skyline") to the respondent, Calmil Enterprises, and that Calmil remains bound by the collective agreement previously in force between the union and Skyline.

3. In 1968 Skyline entered into a lease with the Campeau Corporation (the owner of Place de Ville) for the premises in which Skyline subsequently ran its restaurant business. This business had three aspects: the Cafe de la Paix, Cafe de la Paix Takeout and Le Snack. When Skyline took over the demised premises there were already installed some $75,000.00 worth of restaurant trade fixtures. Mr. G. Falsetto, the regional manager of commercial properties for Campeau, testified that these fixtures would comprise approximately 35-40% of the total assts needed by the lessee to carry on a restaurant business; and that they had been installed by Campeau as a "sweetener", or "inducement", to Skyline to enter into the lease. The remainder of the assets needed to carry on business, the managerial expertise and the employees, were supplied by Skyline itself.

4. The lease provided that the rent for the premises would be calculated with reference to Skylin's gross sales. In addition, there were a number of restrictions on the use which could be made of the premises, and the manner in which business could be conducted. These restrictions ensured that Skyline's restaurant operation would conform to the developer's concept of "balanced" commercial activity, and would not interfere with the business activities of other tenants. Such restrictive covenants are common in leases of this kind.

5. In 1978, or early 1979, a dispute arose between Campeau and Skyline concerning the alleged breach, by Campeau, of a material covenant of the lease. This dispute resulted in an action in the Supreme Court of Ontario and, ultimately, in the surrender of the lease. As part of the resolution of the litigation, certain sums were paid to Skyline, Campeau re-acquired possess ion of the demised premises, (including the existing trade fixtures) and Campeau acquired virtually all of the other business assets formerly used by Skyline. Campeau apparently believed that it could minimize its losses if it maintained the existing configuration of assets intact, and re-let the premises to a new lessee to whom it might also be able to sell the associated assets en bloc. Skyline removed from the premises only those items bearing its crest or logo. Campeau was effectively left in possession of the rest of the assets required to carry on a restaurant business.

6. In mid-May, 1979 Skyline notified the union that the relationship with Campeau Corporation and the restaurant business at the Place de Ville location would soon be terminated. On June, 8th, 1979 Skyline notified the union that it would be surrendering its lease, effective June 30th, 1979. On June 30th, 1979 Skyline terminated the Cafe de la Paix, Le Snack and Cafe de la Paix Takeout operations. Meanwhile, Campeau was seeking a new tenant. After Skyline's departure signs were posted on the premises indicating that they were for rent, and Campeau continued to advertise in the local newspapers, and pursue negotiations with various prospective tenants. Campeau made no effort, at any time, to establish itself in the restaurant business.

7. Basilio Caloia, one of the principals of the respondent, has been in the restaurant business for some twenty years and, prior to these transactions, was the proprietor of another restaurant in the Ottawa area. Mr. Caloia had been seeking other restaurant premises for some time and, through a real estate agent, and a brother-in-law who had been employed by Skyline, became aware that the Place de Ville location might be available for rent. There were lengthy negotiations between Mr. Caloia and Mr. Falsetto. Mr. Caloia was only one of the individuals interested in leasing the premises and he was initially concerned that the leasing arrangement would prove too costly. Eventually, however, as part of a single transaction, having two separate and distinct aspects, Caloia entered into a lease for the subject premises and, for the sum of $70,000.00, purchased from Campeau the assets which Campeau itself had previously acquired from Skyline. The agreement to lease was executed July 23rd, 1979. The lease itself, and the assets transfer, were consummated on August 20th, 1979. As a result of these two transactions the respondent acquired the premises and virtually all of the tangible assets formerly used by Skyline in its restaurant business. While it is difficult to assess the value of these assets, (i.e., the moveable assets left by Skyline and the restaurant trade fixtures already in place) it would appear that about 90% of Calmil's assets were formerly used by Skyline.

8. The terms of the Calmil lease arrangement are somewhat different from those which Skyline had; however the rent, payable under the new lease, is also calculated with reference to gross sales, and there are similar restrictions respecting the use of the premises and the manner in which business must be conducted.

9. The new restaurant opened on August 20th, 1979 under the name of Cafe de la Place. It remains basically a cafeteria and take-out operation. No effort has been made to maintain' any link or identification with Skyline. Certain cosmetic renovations were done, the decorations have been altered and efforts were made to solicit the patronage of employees in the building, but the essential character of the operation has not changed from when Skyline was involved. None of the Skyline employees were retained. A number of them, exercising their seniority rights under the Skyline collective agreement, have transferred into job vacancies available in other Skyline operations. The rest were laid off or terminated. The present employee complement consists of new employees, certain employees formerly employed in Mr. Caloia's other restaurant operation, and certain family members of the principal owners of the restaurant.

10. The respondent dealt only with Campeau. There were no dealings, or communications, with Skyline, directly or indirectly. There was no purchase from Skyline of goods. nor an assignment of business licences, nor any express transfer of goodwill. The respondent regarded the “deal” offered by Campeau as an attractive business opportunity. It did not consider itself to be purchasing all, or part, of Skyline's "business." It was simply entering into a lease and purchasing certain assets from its new landlord. To the extent that it was able to do so, Skyline withdrew the remaining elements of its organization (i.e., expertise, management and their skills, employees, etc.) and incorporated those elements into other parts of the Skyline operation in the Ottawa area or elsewhere. Skyline considered the surrender of the lease and the transfer or assets to Campeau as a successful resolution of its civil action against Campeau. Neither Skyline nor Campeau considered this transaction with Campeau as a “sale of a business.” Campeau never sought to carry on a restaurant business and, since there were no dealings between Skyline and the respondent, neither party had occasion to consider whether there had been a transfer of a business between them.

PART II

11. The relevant parts of section 55 of The Labour Relations Act are as follows:

"(1) In this section,

(a) 'business' includes a part or parts thereof;

(b) 'sells' includes leases, transfers and any other manner of disposi­tion, and 'sold' and 'sale' have corresponding meanings.

(2) Where an employer who is bound by or is a party to a collective agreement with a trade union or council of trade unions sells his business, the person to whom the business has been sold is, until the Board otherwise declares, bound by the collective agreement as if he had been a party thereto and, where an employer sells his business while an application for certification or termination of bargaining rights to which he is a part) is before the Board, the person to whom the business has been sold is, until the Board otherwise declares, the employer for the purposes; of the application as if he were named as the employer in the application.

(3) Where an employer on behalf of whose employees a trade union or council of trade unions, as the case may be, has been certified as bargaining agent or has given or is entitled to give notice under section 13 or 45, sells his business, the trade union, or council of trade unions continues, until the Board otherwise declares, to be the bargaining agent for the employees of the person to whom the business was sold in the like bargaining unit in that business, and the trade union or council of trade: unions is entitled to give to the person to whom the business was sold a written notice of its desire to bargain with a view to making a collective agreement or the renewal, with or without modifications, of the agreement then in operation and such notice has the same effect as a notice under section 13 or 45, as the case requires."

12. When a business (or a part thereof) is transferred or disposed of, the transferee acquires the business subject to the collective bargaining obligations of the transferor. Section 55 transforms these collective bargaining obligations into a form of "vested interest" which becomes rooted in the business entity and, like a charge on property, "runs with the business." The statute eliminates the labour relations effects of a change of ownership or employer; and effectively abrogates the notion of privity of contract. The purpose of section 55 has been succinctly summarized by the Board in Marvel Jewelry, [1975] OLRB Rep. Sept. 733 at page 735:

“Section 55 recognizes that collective bargaining rights, once attained, should have some permanence. Rights created either by the Act, or under collective agreements, are not allowed to evaporate with a change of employer. To provide permanence, the obligations flowing from these rights are not confined to a particular employer, but become attached to a business. So long a; the business continues to function, the obligations run with that business, regardless of any change of ownership."

13. Section 55 involves two related questions: has there been a sale or transfer of "something" from the predecessor to the successor; and, if there has been, is it all, or part, of a "business' which has been transferred. The first question seldom poses any serious difficulties. The Act contains an extended definition of the term "sale", and the Board has consistently held that the "manner of disposition", or its legal form, are irrelevant, so long as a disposition has, in fact, taken place. More serious analytical problems arise with respect to the second question. There is no statutory definition for the term "business." The Board has been left with the responsibility of fashioning an appropriate definition in particular cases, having regard to the business context, "the mischief" which section 55 was designed to cure, and the basic policies embodied in The Labour Relations Act. A general, and somewhat tentative definition, was suggested by the Board in Raymond Cots, [1968] OLRB Rep. Mar. 1211:

“The meaning to be attached to the word 'business' depends to a great extent on the facts and circumstances in each particular case. It cannot be said that any one facet of an enterprise taken by itself necessarily comprises a busi­ness. It has been expressed that a business is 'the totality of the undertaking.' The physical assets of buildings, tools and equipment used in a business are not necessarily the undertaking per se but are, along with management and operating personnel and their skills, necessary in the operations to fulfill the obligations undertaken with a hope of producing profit to assume its success. The total of these things along with certain intangibles such as goodwill con­stitute a business."

14. A section 55 determination is largely a factual question. In Raymond Cote', supra, and a number of other cases, the Board has emphasized the importance of the facts; (see, for example: Culverhouse Foods, [1976] OLRB Rep. July 691 at 693; and also Kenmir v. Frizzel, [1968] 1 All E.R. 414 at 418, where a similar view was expressed by Widjery, J.) but it is impossible to abstract, from these cases, any single factor which is always decisive, or any single principle which provides an unequivocal guideline to the way in which the issue will be decided. What makes the problem especially difficult is that the significance of any particular fact, or aspect of the transaction, may vary with the business context. This difficulty was noted by the Board in Ma gnus Engineering and Construction Ltd., (Board Files 0486-79-R and 0491-79-R; decision released March 13, 1980 - as yet unreported.) At paragraph 26 the Board commented:

“The issue of employer successorship arises out of a seemingly endless variety of factual settings, with each new case presenting some of the factors considered relevant to the resolution of prior cases while raising other materially altered, entirely omitted, or newly-added facts which arguably should affect the decision of the merits. Much of the confusion which attends successor ship results from the facility with which each case can be distinguished on its facts from all former cases; but to dismiss the confusion so lightly would be to disregard the fundamental differences inherent in the various business contexts in which the successorship issue arises. Factors which may be sufficient to support a 'sale of a business' finding in one sector of the economy may be insufficient in another. In some industries, a particular configuration of assets - physical plant machinery and equipment - may be of paramount importance; while in others it may be patents, 'know-how', technological expertise or managerial skills which will be significant. Some businesses will rely heavily on the goodwill associated with a particular location, company name, product name or logo; while for other business, these factors will be insignificant. The Labour Relations Act applies equally to primary resource industries, manufacturing, the retail and service sector, the construction industry and certain public services provided by municipalities and local authorities. In each of these sectors the nature of the business organization is different, yet in each case section 55 must be applied in a manner which is sensitive 10 both the business context and the purpose which the section is intended to accomplish.”

An examination of the cases reveals certain themes, or factual patterns which, if present in the case under consideration, will strengthen the interference oil a section 55 sale; but even these are only indicia. They are not conclusive tests. Even the significance of an apparent continuity of the predecessor's business may be diminished if the assets involved in the transfer have a discrete and limited range of uses so that the transferee's use will necessarily be the same as that of the transferor; or, if there are countervailing factors, such as a hiatus between the "demise" of the predecessor and the "birth" of the successor, or the interposition between the two of a truly independent third part. Such factors weaken the inference of a "section 55 sale" and suggest a transfer only of assets.

15. In the present case we have the continuation in the hands of the alleged successor of virtually the entire configuration of assets formerly used by the predecessor in its business organization. Moreover, there is no real change in the character of the business. Normally this would create a strong inference of a sale of a business. The trade union urges the Board to make this determination, and contends that anyone who enters into a lease arrangement with Campeau for the subject premises, and at the same time acquires the assets which Campeau was seeking to dispose of, will become the successor of Skyline - even though there are no direct dealings with Skyline and there is no intention, on the part of any party, to effect a business transfer. The union submits that, so long as a restaurant business is conducted in the Place de Ville location, with the assets formerly used by Skyline, the bargaining union's rights will continue. This argument, in essence, roots bargaining rights in "the assets" rather than "the business"; and we are unable to accept it as a general proposition. A transfer of a significant portion of the predecessor's assets may well be a "sale of a business"; but it will not always be so.

16. In the present case the alleged successor had an established restaurant business entirely unrelated to the Skyline operation. It is Mr. Caloja who is supplying the entrepreneurial initiative, managerial skills and operating personnel to the Place de Ville venture. None of these important elements of the business are traceable to Skyline; and many were actually transferred from Caloia's existing restaurant business. Similarly, none of the employees of Skyline were retained but were either laid off or exercised their rights, under the Skyline agreement, to transfer into other jobs in the Skyline organization. Many of the present employees were transferred from Caloia's other restaurant. There is no evidence of any attempt to recruit or retain the employees of Skyline nor is there evidence that any of such employees sought employment with Calmil. Of course, the fact that an alleged successor has a pre-existing, similar, business does not mean that it has not acquired another one. Section 55(6) contemplates this very possibility. Nevertheless, the fact that an alleged successor already has an established business organization cannot be ignored, and makes it easier to find that there has been merely an acquisition of assets rather than a transfer of a business.

17. We do not think we can ignore the rather unique circumstances in which this particular asset transfer was accomplished. The transfer to Campeau resulted from litigation with Skyline. The acquisition by Campeau of Skyline's assets was not regarded as a transfer of a business. Campeau made no attempt to continue the restaurant as a going concern, or preserve any connection with the previous owner. The premises were closed and advertised for rent. It cannot be said that Campeau was ever in the restaurant business as a successor of Skyline, nor was it the agent of Skyline, for the purposes of disposing of Skyline's business as a going concern. In this respect the facts of this case are different from the line of "receiver” cases in which the Board has found that a transfer of a business, through the offices of a receiver, constituted a transfer to which section 55 applies (see Hughe's Boatworks, [1977] OLRB Rep. (Dec.) 815, Marvel Jewelry, supra, and Field-Price Ltd., [1973] OLRB Rep. (Oct.) 543. See also Toronto-Dominion Bank and Price-Waterhouse Ltd., [1979] OLRB Rep. (Jan.) 50, in which the Board found that the appointment of a receiver does not, in itself, constitute a transfer of a disposition of the business and that, therefore, a receiver is not a successor employer in its own right.) Although this might be characterized as a "tripartite" transaction, (i.e., a "double transfer" from Skyline to Campeau and then from Campeau to Calmil) there is no pre-existing corporate or commercial relationship between the parties involved. In weighing the evidence the Board has noted that this factor may also be important. In Metropolitan Park Inc., (Board File 0523-79-U - decision released December 18, 1979), the Board commented:

In assessing the facts from which a transfer of a business may be inferred, the Board has always been especially sensitive to any pre-existing corporate, commercial or familial relationship between the predecessor and the alleged successor; or between the predecessor, the alleged successor and a third party. Transactions in these circumstances require a more careful examination of the business realities than do transfers between two previously unrelated business entities. The presence of a pre-existing relationship may suggest an artificial transaction designed to avoid bargaining obligations; or (more commonly) there may be a transaction in the nature of a business re-organization which does not alter the essential attributes of the employer-employee relationship, and which should not, having regard to the purpose of section 55, disturb the collectively bargained framework for that relationship. A business may have created a new legal vehicle to carry on all or part of its activities, or it may have redistributed those activities among its existing legal components without changing its essential character or the identity of its real principals or proprietors. The separate legal identity of the components may be superfluous from an economic view point, and there may be an actual transfer of business activity from one to the other, even though there is little evidence of a transfer of tangible assets, goodwill, etc. In reality, the employer's business may not be exclusively "his" to transfer, for a common principal, shareholder or corporate parent may have the effective power to extinguish an apparently independent business and transfer its economic functions to another. If both businesses are also "in the same business", (i.e., supply the same product in approximately the same way and potentially to the same market or customers) a transfer of a business may have occurred but may be very difficult to detect. In such circumstances it may be important to carefully examine the pre-existing links or lines of common control to which the alleged predecessor and successor are both subject. Such examination is precisely what is undertaken by the Board on an application under section 1(4); but it is also relevant to section 55 applications, and it is for this reason that applicants commonly plead section 1(4) in the alternative. It would be incorrect to make this consideration a decisive "test" for successorship; but where there is a pre-existing corporate connection between the predecessor and the successor the Board has been disposed to infer a 'transfer' if there is the slightest evidence of such transaction. (See: Zehrs Markets, [1975] OLRB Rep. (Jan.) 48.) The pre-existing "nexus" between the respondents inevitably colours the Board's view of facts. As a practical matter, it is much more difficult to sustain the contention that one has not acquired a predecessor's business but merely founded a new, independent, but similar, business serving the same market.

Here, however, there are no pre-existing corporate or commercial relationships among the parties, and the transaction cannot be viewed as an attempt to rationalize business operations, or reorganize market shares among separately incorporated divisions of a corporate family. Nor is there any evidence to suggest that the transaction is an artificial one, designed to avoid a continuation of bargaining rights. In this respect the present case contrasts with cases such as Gordon's Markets, [1978] OLRB Rep. (July) 637, and the absence of any direct disposition a between Skyline and Calmil takes on added significance. Skyline had no part in selecting Calmil as the new tenant and Skyline's departure was in no way conditioned upon Calmil's entering into a new lease with similar terms. The two transactions were entirely unrelated. There really was no disposition between Skyline and Calmil, nor proceeds of disposition flowing to Skyline, nor any other benefit to Skyline attributable to the second transaction.

18. In our view Skyline did not transfer a "business" or "going concern" to Campeau. Skyline transferred, and Campeau acquired, certain surplus assets. Campeau, in turn, transferred those assets to Calmil, who subsequently incorporated them in its own business organization. We do not think that these two separate transactions constitute a "sale of a business" within the meaning of section 55 of the Act. The application is therefore dismissed.

DECISION OF BOARD MEMBER W.F. RUTHERFORD:

1. The facts before the Board were not in dispute and the majority decision accurately sets them out. However, I disagree with the majority with respect to the conclusions they have drawn from those facts. I would find that a sale of a business within the meaning of section 55 of the Act has taken place and that the respondent Calmil is bound by the collective agreement with the applicant.

2. I wish to briefly set out the relevant facts. Campeau is the landlord of Place de Ville, an office and shopping complex. In order to provide food facilities, it leased to Skyline Hotels the space necessary to establish a fast food outlet and snack bar. Other than the chairs, tables, china, and silverware, the equipment used in the restaurant operation was provided by Campeau. The rent paid by Skyline to Campeau was based on gross sales. Any increase in Skyline's business at the complex meant higher rents payable to Campeau and therefore more profit for Campeau.

3. When Skyline surrendered the lease, Campeau advertised for someone to take over the premises in order to have the restaurant operations continued.

4. Mr. Caloia, along with his brother-in-law, a former Maitre d' at the Skyline premises, negotiated a lease with Campeau on terms similar to that of the Skyline lease. The brother-in-law became Mr. Caloia's partner and manager of the operation.

5. Campeau negotiated both the Skyline and Calmil leases which determined the rent payable, not just on the basis of floor space area, but which sets the rent payable to Campeau based upon the gross sales of the business.

6. Campeau, once having entered into a leasing arrangement whereby its income and profits were based upon the gross sales of the restaurant business, had a direct and immediate interest in the business. In effect, Campeau was a participant in a joint venture with its tenants and was interested in having the tenants' business continued. In my view, Campeau is the link in the transfer of the business from Skyline to Calmil.

7. The Board is required by section 55 to identify the essential elements of a business and to determine whether the sum of those elements, that is, the business, has been sold. In this case, the essential elements of the predecessor's business were the assets used by it and the leased premises. While Calmil provided new personnel and entrepreneurial initiatives, nevertheless, the elements of Skyline's business were transferred through Campeau to Camil. The food and beverage operation run by Calmil Enterprises is the same as that run by Skyline Hotels. The equipment used by Calmil Enterprises is the same equipment that Skyline Hotels used, transferred over to Calmil through Campeau Corporation. The space used for the facilities is the same for Calmil as for Skyline.

8. For these reasons, I would find that Skyline disposed of its business and that the business flowed through Campeau to Calmil. I would therefore declare that Calmil is bound by the collective agreement with the applicant.